2018 Half-year in review: M&A legal and market developments

We set out in the attached Newsletter a number of interesting English court decisions and market developments which have taken place in the second half of 2018 and their impact on M&A transactions. This review looks at these developments and gives practical guidance on their implications. The Newsletter summarises each court decision or market development and highlights key lessons from each case, and you can click where indicated to access more detailed analysis.

2018 Half-year in review
M&A legal and
market developments
January 2019
Attempt to circumvent right of first refusal
mechanism in SHA failed
The High Court decided that a shareholder had not been
entitled to instigate a right of first refusal (ROFR) clause under
a shareholders’ agreement (SHA). The ROFR procedure
could not be engaged by an underlying offer from any of the
investors or their affiliates, but only from a true “third party”
for the purposes of a contractual requirement in the SHA
for the price to be that proposed by a “bona fide third party
purchaser”. In any event, the ROFR notice failed to comply
with other requirements of the SHA.
An English law-governed SHA in relation to company C
regulated the relationship between the two majority
shareholders (W and U) and minority shareholder I. Under the
SHA, I could sell shares in C, subject to first giving W and U
a ROFR to buy its shares pro rata to their shareholdings. The
ROFR clause stated that I’s obligation was to “grant to [W] and
[U] the right of first refusal”, and one permitted basis of pricing
was “the price proposed by a bona fide third party purchaser”.
W and I agreed that a subsidiary of W (S) would acquire 3.99%
of I’s shares. I served an ROFR notice on W and U offering to
Authors: Philip Broke, Patrick Sarch, Veronica Carson
We set out below a number of interesting English court decisions and market
developments which have taken place and their impact on M&A transactions. This
review looks at these developments and gives practical guidance on their implications.
Summaries feature below, and you can click where indicated to access more
detailed analysis.
Contractual provisions
A number of cases have looked at common contractual provisions on M&A deals
In this issue…
Contractual provisions ............................................................1
Company law ..........................................................................5
Listed companies ...................................................................9
Key lessons
Attempt to circumvent ROFR structure failed:
The judgment shows that the court will be rigorous
in applying the specific requirements of an SHA
in relation to a ROFR/buyout mechanism and
related notice.
Rules of construction of SHAs: It also shows
the willingness of the court to apply general rules
of construction to SHAs, not special rules of
interpretation in relation to articles of association.
Clear drafting and commercial rationale
in recitals: The judgment is a reminder of the
importance of unambiguous drafting of share
transfer restrictions. It may also help to set
out the commercial rationale for a ROFR in the
recitals to an SHA (such as maintaining certain
shareholding proportions) to minimise the risk of a
restrictive interpretation.
Click here to read more
2 White & Case
Drag-along clause in shareholders’ agreement
triggered by arm’s length sale and non-cash
consideration allowed
The High Court decided that shareholders had successfully
complied with, and implemented, a drag-along clause
in an SHA as the words purchase monies “or any other
consideration” in the clause were wide enough to include
a non-cash consideration and the transaction met the
requirements of the clause for an underlying bona fide
arm’s length sale as a pre-requisite to exercising the drag.
Landowning company C had three syndicate shareholders,
acting together, and two independent shareholders who
included M. The three syndicate shareholders and M were
also directors of C and members of its separate operating
company (O). C had acquired the quarry on which O operated
through funding entirely from the syndicate shareholders.
Those shareholders also had ultimate control under the
governing SHA.
Under a drag-along clause in the SHA, if the syndicate
shareholders wanted to sell their shares to a “bona fide
arm’s length purchaser” they could drag-along the other
shareholders, by requiring them to sell all their shares to the
same buyer on the same terms. A further clause said that,
if a dragged shareholder failed to execute share transfers on
receiving the purchase monies “or any other consideration
payable for the shares”, the syndicate shareholders could
sign instead. O suffered financial problems, and existing
funder F agreed to increase funding on the basis of a
restructuring through which it would take equity. This
required shareholders to sell their shares in C to a wholly-
owned newco subsidiary of F, in consideration of an issue of
shares in newco. The syndicate agreed to this and dragged
the other shareholders. M challenged this, alleging the drag
clause did not allow a non-cash consideration and that the
sale had not been arm’s length. The High Court decided that
a non-cash consideration was allowed. You had to focus on
the meaning of the words “or any other consideration” in
the factual commercial context of the SHA. This led to the
conclusion that the language was permissive and deliberately
wide to allow for unforeseen circumstances. The High Court
was also satisfied that the sale had been arm’s length. The
requirement was for an arm’s length purchaser at the time of
the drag-along sale, not at or consequent on completing the
purchase. There had been no prior connection between the
syndicate and F before the sale was agreed, as newco had
no interest in C until completion. The court said there was no
evidence the transfer had been at an undervalue, as any value
in the land owned by C was offset by huge potential liabilities
which it could not meet. F had acted in good faith and all
shareholders were treated equally and received a pro rata
shareholding in newco. F was just trying to protect its original
investment, which otherwise was in serious jeopardy given
the enormity of C’s liabilities and O’s ultimate administration.
(Cunningham v Resourceful Land Limited and others [2018]
EWHC 1185 (Ch))
Key lessons
Clear drafting: The case demonstrates the
importance of express wording on the form of the
consideration and other parameters around which
such compulsory buyout clauses may be triggered.
Contractual requirement as to arm’s length
dealing: The outcome suggests that a contractual
requirement for a transaction to take place between
unconnected parties may be tighter and less open to
interpretation than one only imposing a requirement
for a transaction at arm’s length.
sell that percentage of shares at the price conditionally agreed
with S. The notice gave “each of” W and U the right to acquire
“all (but not some only)” of the offered shares. The High Court
emphasized that it had to consider the objective meaning of
the language used, considering the SHA as a whole and the
parts of it that gave its context. On this basis, it decided that
I had not been entitled to initiate the ROFR procedure and
the ROFR notice was invalid. Neither W nor U was entitled to
acquire shares from I other than by exercising the ROFR, which
they had to do jointly. In any event, neither W nor U were third
parties for the purposes of the pricing clause. The expression
bona fide “third party” meant an outside person unconnected
with the SHA and was used to distinguish other persons from
the investors and their affiliates. The principle of case law
that restrictions on transfer in articles of association require
clear language and are construed narrowly did not apply to the
SHA, which was a commercial inter-shareholder agreement
on how they would deal with their shares. This did not affect
the intrinsic rights attached to the shares, but was a matter of
private agreement. This was particularly so as the restrictions
on transfer were not mirrored in the articles and reflected I’s
role as independent investor and “honest broker” between
the other parties. In any event, the proposed price had been
inflated in an effort to deter U from exercising the ROFR.
(United Company Rusal PLC v Crispian Investments Limited
and another [2018] EWHC 2415 (Comm))
Click here to read more
32018 Half-year in review
Majority not precluded from petitioning for
unfair prejudice due to reserved matters in
investment agreement
The High Court allowed a majority shareholder to petition
for relief from unfair prejudice under the UK Companies
Act 2006, because the scope of the reserved matters in the
investment agreement requiring consents from the minority
shareholder negated the effect of the majority voting rights
which it technically held.
S owned 40% of the voting rights in C Limited and two
other companies (together, I) owned the other 60%. P
was controlling shareholder of S. Under the investment
agreement (IA) relating to C, S was entitled to appoint two
(out of five) directors to C’s board. S appointed P and P’s
son. Subsequently, both S’s appointees were dismissed on
Key lessons
Effect of reserved matters: The judgment
demonstrates that particular consent requirements
under reserved matters in contractual inter-shareholder
arrangements can override the significance of
“majority” held voting rights when assessing
who may bring an unfair prejudice petition.
Ability to block special resolution: If a minority
shareholder can block a special resolution which
the majority shareholder seeks to have passed, this
might indicate that the majority is not effectively
protected from unfair prejudice by its voting control.
Trigger of bad leaver provisions meant part of sale
proceeds repayable and dishonest assistance to
breach of fiduciary duty
A former director-shareholder of company C, who had set up
a competitor company (M), had breached his fiduciary duties
to C and was liable to repay the majority shareholders the
difference between the amount they paid for his shares and
what they would have paid under the bad leaver provisions
in the underlying SHA. M was also liable for dishonestly
assisting his breach of fiduciary duty.
The effect of the SHA, taken with C’s articles of association,
was that a shareholder in material breach of the SHA could
be compulsorily bought out by the other shareholders under
bad leaver provisions at a 50% discount to a profits-based
share valuation. Director-shareholder D’s relationship with the
majority shareholders deteriorated. Knowing that they were
on the verge of buying him out, D took initial steps towards
setting up competing business M in conjunction with one of
C’s employees (E), who was ostensibly M’s sole shareholder
and director. D also arranged for E to email him copies of
documents in C’s possession to use for the advantage of the
competing business. M was incorporated just over a week
after D and E both left C. Separately, D arranged for one of
C’s IT consultants to transfer funds from C to an account he
controlled. Various allegations of financial fraud had already
been determined against D. The High Court decided that D
had breached both his fiduciary director’s duties to C and also
various express obligations in the SHA, including: to promote
the success of the business and, along with the other
members, to conduct all transactions with C in good faith
and not to compete with C. He had also breached restrictive
covenants in the sale and purchase agreement (SPA) for the
sale of his shares. The High Court said that the “line was
crossed” well before D resigned as director. D’s material
or persistent breach of the SHA should have triggered the
compulsory buyout mechanism at the bad leaver discount.
This had not happened, and D was ordered to reimburse the
majority shareholders the difference between what they had
actually paid for his shares and the lower amount that they
should have paid had the bad leaver provisions been applied.
M was also liable for dishonestly assisting D’s breaches
of fiduciary duty (by undertaking a competing business,
knowingly gaining from the use of information from C and
concealing D’s interests in M) and was liable for damages or
an account of profits. It did not matter whether the assistance
had taken place at the time of the breach, provided that a
causal link was established. Permission has been granted
to appeal the judgment. (Keystone Healthcare Limited
and another v Parr and others [2018] EWHC 1509 (Ch))
Key lessons
Bad leaver provisions: The decision shows the
court’s willingness to uphold bad leaver provisions
and, more generally, the parties’ contractual bargain.
Dishonestly assisting breach of fiduciary duty:
The case is an interesting example of a claim for
dishonestly assisting a breach of fiduciary duty being
made out.
When resigning director “crossed the line”: There
is useful guidance on when the “line was crossed”
on breach of a director’s fiduciary duty by setting up
a competing business. The precise point at which a
director’s preparations for establishing a competing
business become unlawful will depend on the facts.
Click here to read more
Click here to read more
4 White & Case
Non-reliance statement on its own failed
reasonableness test
The Court of Appeal confirmed that a non-reliance clause
amounted to an exclusion of liability for misrepresentation.
This meant that it was subject to the reasonableness test in
the UK Unfair Contract Terms Act 1977 (UCTA) which, on the
facts, it failed.
A non-reliance clause is an acknowledgement by the
parties that they have not relied on any representation or
other statement which is not expressly incorporated into
the subject agreement. It is a key element in negating
liability for extra-contractual representations, a constituent
element of which is that an untrue statement must have
induced the contract. A standalone non-reliance clause in
a lease stated: “The tenant acknowledges that this lease
has not been entered into in reliance wholly or partly on any
statement or representation made by or on behalf of the
landlord.” Before exchanging contracts, the tenant’s lawyers
had raised standard pre-contract enquiries. These included
a statement that the landlord would notify anything which
might cause any of the replies to become incorrect before
exchange or completion. One of the landlord’s responses
was that it was not aware of any environmental problems.
The landlord’s agents subsequently received a report that
there was asbestos on the property, but they failed to inform
the tenant before the lease and agreement for lease were
concluded. The tenant terminated the lease and claimed
for misrepresentation. The Court of Appeal decided that
the non-reliance clause in the lease was subject to the
reasonableness test in UCTA, which it failed. The effect
was that the clause was unreasonable and void. The Court
of Appeal took into account the importance of pre-contract
enquiries in the field of conveyancing. It rejected arguments
that a non-reliance clause amounts to a basis clause (defining
the basis on which the parties are contracting and preventing
liability from arising in the first place) rather than an exclusion
clause to which UCTA applies. The question whether a term
excludes liability or merely shows that no relevant obligation
has been undertaken is one of contractual interpretation.
The analysis on “basis” clauses did not apply to an attempt
to exclude liability for the tort of misrepresentation,
as parties can only contract-out of that subject to the
reasonableness test in UCTA. As liability arises under the
UK Misrepresentation Act 1967, the contract cannot be said
to prevent liability arising in the first place. Permission has
been requested to appeal the judgment. (First Tower Trustees
Limited and another v CDS (Superstores International) Limited
[2018] EWCA Civ 1396)
Key lessons
Application of UCTA: This decision is consistent
with past case law that exclusions or limitations
of liability for misrepresentation in non-reliance
and entire agreement clauses are subject to the
reasonableness test in UCTA.
Exclusion not basis clause: The judgment
demonstrates that, particularly in an M&A context,
a non-reliance clause in a contract will not be
treated as a “basis” clause as it seeks to exclude
statutory liability.
Updating due diligence information: Particularly
on a UK share sale, it is in any event important to
update responses to due diligence enquiries as
information or circumstances materially change,
to avoid statutory liability under the UK Financial
Services Act 2012 for false or misleading statements.
Click here to read more
grounds of misconduct, including allegations of conflicts of
interest. S brought an unfair prejudice petition under the UK
Companies Act 2006 challenging their dismissal on the basis
C’s affairs had been conducted in a manner unfairly prejudicial
to its interests. I petitioned by way of counterclaim that P’s
and S’s conduct in managing C’s affairs had been unfairly
prejudicial to I’s interests and breached fiduciary director-
duties owed to C. The High Court decided that I’s majority
voting rights in C did not preclude them from bringing an
unfair prejudice petition. There was nothing in the statute to
limit a petitioner to a shareholder holding a minority interest.
The court emphasized that any unfairly prejudicial conduct by
S or P could not be adequately remedied by I’s voting rights,
because instituting or settling material legal proceedings
was a reserved matter under the IA requiring unanimous
shareholder consent before a claim could be brought against
directors for breach of duty. C’s future management could be
seriously disrupted by S’s refusal to consent to reasonable
proposals from the “majority” shareholders. The court also
confirmed that the misconduct of a director appointed to
the board by a corporate shareholder under a company’s
constitution could be attributed to that shareholder.
Permission has been requested to appeal the judgment.
(Cool Seas (Seafoods) Limited v Interfish Limited and others
[2018] EWHC 2038 (Ch))
52018 Half-year in review
Entire agreement clause in SPA failed to exclude
liability for misrepresentation
The High Court recently overturned a master’s first instance
decision and decided that an entire agreement clause in a
share SPA failed to exclude liability for misrepresentation. The
clause had not included a non-reliance acknowledgement nor
expressly excluded liability for misrepresentation.
The SPA stated: “This agreement (together with the
documents referred to in it) constitutes the entire agreement
between the parties and supersedes and extinguishes all
previous discussions, correspondence, negotiations, drafts,
agreements, promises, assurances, warranties, representations
and understandings between them, whether written or oral,
relating to its subject matter”. Also under the SPA, the seller
(S) indemnified the buyer (B) in respect of any losses incurred
by B from S’s mis-statement of the club’s liabilities or failure to
provide details of material contracts and associated liabilities.
It was alleged that due diligence information provided to B by
S had materially understated the target’s liabilities. B brought
a claim for misrepresentation. The High Court reversed
the master’s first instance decision that B could only claim
under the indemnity and not for statutory misrepresentation
despite the absence of an express exclusion of claims for
misrepresentation and other shortcomings of the drafting.
The master had construed the entire agreement clause in the
context that the parties had set up an alternative contractual
structure, instead of statutory misrepresentation, to deal with
claims for misrepresentation or other mis-statement. Reversing
that decision, the High Court said that you had to establish
the intention of the parties as expressed in the agreement.
Contractual language providing for one type of claim does not
carry an implication that all other types of claim are intended
to be excluded. The court should not go beyond the proper
bounds of construction and improve the bargain the parties
actually made. The mere possibility that words used might
extend to matters that could found other claims was not
enough to amount to an exclusion of such claims. (Fawaz
Al-Hasawi v Nottingham Forest Football Club Ltd and others
[2018] EWHC 2884 (Ch))
Key lessons
Express exclusion of liability needed: The
judgment is in line with past case law that
express wording is required to exclude claims for
misrepresentation.
Drafting issues on entire agreement clauses: It
is best practice for an entire agreement clause to
contain an express non-reliance acknowledgement,
a statement as to the entire agreement and
understanding between the parties, express
exclusions of claims for misrepresentation and
mis-statement and a fraud carve-out.
Click here to read more
De facto and shadow directors and no dishonest
assistance or unlawful means conspiracy
The High Court confirmed that whether an individual was
a de facto or shadow director depended on the facts and
was not subject to a clear legal test. Although on the facts
the individuals in question were shadow directors, there
had been no breach of fiduciary duty. Related claims against
certain individuals and entities for dishonestly assisting a
breach of fiduciary duty and unlawful means conspiracy were
also rejected.
Company C’s liquidator brought claims for fraudulent trading
and breach of fiduciary duty against certain individuals
(including Mr R and Mr M) and entities in relation to
commission-sharing arrangements with other companies
(O) of which R and M were ultimate beneficial owners. It
was alleged that R and M were “de facto” directors of C
(on the basis they were acting as directors without having
been validly appointed) or shadow directors (on the basis
the appointed directors were accustomed to acting in
accordance with their directions or instructions) due to their
involvement in recruitment, negotiation of service contracts,
directions over contracts with developers and financial
Key lessons
Test for de facto and shadow directors: The
judgment reaffirms that the analysis on whether an
individual is a de facto or shadow director, and what
fiduciary duties a shadow director might owe, is
fact-specific.
Unlawful means conspiracy/dishonest
assistance: The case is another example of the
growth in claims for unlawful means conspiracy and
dishonestly assisting breaches of fiduciary duty.
Click here to read more
Company law
There have been some particular cases of interest on a range of company law issues
6 White & Case
Conditional cross-border merger approved by
the court
The High Court has approved a cross-border merger by
absorption of a wholly-owned subsidiary where completion
was subject to a condition.
A cross-border merger was to take place under the Cross-
Border Mergers Regulations 2007 in the form of a merger
by absorption of a wholly-owned Luxembourg subsidiary (S)
into its UK parent company (C). The effect was that C would
be the only surviving entity following the merger. Before the
cross-border merger, substantial assets worth €2 billion were
to be transferred from another Luxembourg group company
to S by way of a domestic demerger in Luxembourg. The only
step required for the demerger to take place was for C, as sole
shareholder of both Luxembourg companies, to go before a
notary public in Luxembourg to get the demerger approved.
Consequently, completion of the cross-border merger was
expressed to be conditional on the demerger first happening.
The court approved the conditional cross-border merger. The
court was satisfied that everything had been done to make
the process of getting the notary’s approval as certain as
possible. The necessary documents were all prepared and the
cross-border merger would follow completion of the demerger
virtually automatically in a very short space of time. The
court took into account that there was very limited risk of the
condition not being satisfied and that, as this was a merger by
absorption of a wholly-owned subsidiary, shareholders would
not be adversely affected. The surviving UK company C was
in a good financial position, with shareholder assets of around
£3.5 billion, whilst S had no employees to transfer. (Re Chanel
Limited [2018] EWHC 1095 (Ch))
Key lessons
Conditionality: The judgment indicates that
the court may be willing to approve a conditional
cross-border merger where it is satisfied that the
parties have taken all reasonable steps to satisfy
the condition, other than implementing the actual
cross-border merger.
Analogy with restructuring schemes: The
decision is in line with previous case law, in
the context of a restructuring scheme, on the
court’s ability to sanction a conditional scheme of
arrangement in analogous circumstances where
appropriate (Re Lombard Medical Technologies
[2014] EWHC 2457 (Ch)).
Click here to read more
reporting. Under Article 85 of C’s articles of association, a
director was permitted to be a party to a transaction with C
without accounting for benefits, provided that any material
interests were disclosed. Claims were also brought against
C’s advisers, who had been retained on R’s recommendation
and had advised on and drafted the commission agreements,
for dishonestly assisting a breach of fiduciary duty and
unlawful means conspiracy based on the alleged breaches of
fiduciary duty.
The High Court first confirmed that there was no clear legal
test for determining whether a person was a de facto or
shadow director. You needed to focus on what the person
actually did in relation to the company, not any job title
they had. The court also discussed the difficulties in laying
down a general principle as to what fiduciary duties (if any)
a shadow director owed. The court said that, on issues of
fiduciary duty, it may be more helpful to ask whether the
individual has expressly or impliedly undertaken or assumed
a position of trust and confidence or whether there is a
legitimate expectation that they will not use their position in
a way adverse to the company’s interests. The High Court
decided on the facts that R and M were shadow (but not de
facto) directors in relation to some of C’s activities. However,
they were not in breach of duty and were not liable for the
commission payments, as substantial services had in fact
been provided by O. In any event, it would be difficult to
establish breach of fiduciary duty by a shadow director in
circumstances where a formally-appointed director would
not be liable because the latter would be relieved from duty
by statute or would have had the benefit of Article 85. The
court said it would not impose liability on a shadow director
to account for profits where a formally-appointed director
would not be liable. Claims against the advisers for dishonest
assistance and unlawful means conspiracy were also
rejected, on the basis that the alleged breaches of fiduciary
duty had not occurred and, in relation to dishonest assistance,
that there had been no dishonesty. Claims for fraudulent
trading also failed. (Instant Access Properties Limited (in
Liquidation) v Rosser and others [2018] EWHC 756 (Ch))
72018 Half-year in review
Reverse cross-border merger did not qualify
as a merger by absorption of a wholly-owned
subsidiary
The merger by absorption of a Luxembourg parent company
by its wholly-owned UK subsidiary did not qualify as a merger
by absorption of a wholly-owned subsidiary under the Cross-
Border Mergers Regulations 2007 (Regulations). The effect
was that the merger did not qualify for the less onerous
requirements applying under the Regulations to a merger by
absorption of a wholly-owned subsidiary.
A merger by absorption was proposed whereby Luxembourg
parent company (L) would be absorbed by its UK subsidiary
(S), with its current shareholders receiving shares in S. S
applied to court for the certificate that it had completed
the pre-merger acts and formalities. Critically, it sought the
benefit of provisions in the Regulations which impose less
onerous content requirements for the draft terms of merger
in the case of a merger by absorption of a wholly-owned
subsidiary compared to those which apply to a general
merger by absorption. The High Court decided that the
reduced content requirements did not apply to a reverse
cross-border merger and declined to grant the certificate.
The court said that the argument that the exemption for
mergers by absorption of a wholly-owned subsidiary applied
was unsustainable. The Regulations were clear that a reverse
cross-border merger only qualified as a general merger by
absorption, not a merger by absorption of a wholly-owned
subsidiary, and that there were no exemptions from the
content required. (Re GSI Group Holdings Limited [2018]
EWHC 1397 (Ch))
Key lessons
Consistent with past case law: The decision is
consistent with the outcome in Re GET Business
Services Ltd [2017] EWHC 2677 (Ch), where it was
held that a merger of two wholly-owned subsidiaries
of the same parent did not qualify as a merger by
absorption of a wholly-owned subsidiary.
Apply law of surviving entity: It is the law of
the surviving entity which applies when you are
assessing the status of a reverse cross-border
merger for these purposes.
Click here to read more
Court sanctioned proposed merger to allow UK plc
to become an SE on the basis no abuse of law
The High Court has decided that the introduction of a
Luxembourg company into a group structure specifically
to allow a UK plc (P) to use the merger provisions of
the Regulation on the Statute for a European Company
(SE Regulation) was not an abuse of law.
P conducted insurance business from its registered office
in London and its branches across Europe. It wanted to
become a Societas Europaea (SE) in accordance with the
SE Regulation, which requires the merger or formation of a
new company by companies from at least two EEA member
states. The advantage of an SE is that it is able to transfer its
registered office to another member state under a simple and
relatively quick procedure. To facilitate this, P incorporated a
company in Luxembourg (L), with a view to merging L with
P, on the basis P would acquire all of L’s assets and liabilities
and then be registered as an SE at UK Companies House.
L, which did not trade and had limited assets and liabilities,
would then cease to exist by operation of law. The court
approved the merger. It did not matter that L had been formed
with the specific aim of allowing P to become an SE under
the SE Regulation. Even if L’s involvement was just a means
to enable P to produce the intended result under the SE
Regulation, this was not an abuse of law. (Re Liberty Mutual
Insurance Europe Plc [2018] EWHC 1445 (Ch))
Key lessons
Follows approach of case law on cross-border
mergers: In line with the approach in Re Easynet
Global Services Ltd [2018] EWCA Civ 10, where the
Court of Appeal held that the presence of a single
non-UK (Dutch) company in a structure to facilitate a
merger under the Cross-Border Mergers Regulations
2007 had not been an abuse of law.
Click here to read more
8 White & Case
Two schemes of arrangement with separate
purposes need not be treated as one
composite scheme
An intra-group reorganisation involving two schemes of
arrangement and reductions of capital was not precluded
under s.641(2A) of the UK Companies Act 2006 (CA 2006),
which prohibits a capital reduction as part of a scheme for
the acquisition of all the shares in a company, because each
scheme served a separate and real commercial purpose.
O Plc was the parent of a group of companies. Following a
strategic review of its businesses, O’s directors decided to
carry out two schemes of arrangement to split the group
into separate businesses. The first scheme would demerge
a wholly-owned subsidiary of O (company Q). This would
involve a reduction of share capital by O and cancellation of
its share premium account to create distributable reserves.
Part of these would be used to make a distribution in specie
of shares in Q to O’s members. The first scheme would
also reclassify some of the ordinary shares in O and transfer
some shares to nominees for the relevant shareholders in
preparation for the second scheme. The second scheme
would create a new holding company for O and the remaining
group (holdco). It would provide for all of the shares in O
after operation of the first scheme either to be transferred
direct to the new holdco or cancelled. The reserve arising on
cancellation would be applied in paying up new shares in O
which would be issued to the new holdco. As consideration
for the cancellation or transfer of their shares under the
second scheme, O’s members immediately before the
second scheme would receive one share in holdco for every
share they held in O. The High Court was satisfied that the
schemes did not infringe s.641(2A). The prohibition did not
apply to the reduction of capital in the first scheme, because
no person would acquire all of the shares in O. The prohibition
could apply to the cancellation reduction in the second
scheme, because essentially that was a scheme by virtue of
which all of the shares in O would be acquired by the new
holdco. However, in practice the exception in s.641(2B) of
the CA 2006 applied, which allows corporate reorganisations
where a new holding company is inserted into the group
and the pre-existing members have substantially the same
equity ownership in the new holding company. The High
Court decided that there was no reason to treat the two
schemes as one composite scheme and reconsider whether
that would trigger the prohibition in s.641(2A). This was
because each scheme served a separate very real commercial
purpose, not tax avoidance (which was the mischief that
s.641(2A) was directed at). Indeed, the first scheme could be
carried into effect independently of the second and was not
conditional on the second scheme being approved. At the end
of the first scheme, if the second scheme did not become
effective “unwind” provisions would operate in relation to
all the transfers and share reclassifications. This meant it
was unnecessary to consider what the analysis would have
been on a composite scheme. (Re Old Mutual Plc [2018]
EWHC 873 (Ch))
Key lessons
Independent schemes: The judgment confirms that
there is no need to treat schemes as one composite
scheme where the first scheme can take place
independently of the second and they are not inter-
conditional.
Unresolved issues: The decision leaves open
what the analysis would have been on a composite
scheme as to: (i) whether only reductions of capital
which directly facilitate an acquisition of shares in
the company by a third party are prohibited; and
(ii) whether, given the introduction of nominees
into the structure, the requisite equivalence of
membership and proportionate equity shareholdings
for the exemption in s.641(2B) to apply could be
created by the scheme itself.
Click here to read more
92018 Half-year in review
Listed companies
Several rulings by the London Stock Exchange are of particular interest to AIM-traded companies
Public and private censures and three companies
fined for breaches of the AIM Rules
The London Stock Exchange (LSE) announced the public
censure and fine of MBL Group Plc (M) and, separately,
the private censure and fine of two further companies,
for breaches of Rules 10 (Principles of disclosure),
11 (General disclosure of price-sensitive information)
and 31 (AIM company and directors’ responsibility for
compliance) of the AIM Rules.
The LSE publicly censured and fined M for breaches of
Rules 10, 11 and 31 of the AIM Rules, owing to failures to
inform the market promptly of certain financial information
relating to its subsidiaries. M published its annual accounts
to the end of March 2017 in August of that year, with no
mention of any material change in financial performance.
Updated consolidated management accounts were made
available to the board on 14 September, which highlighted
significant deterioration in the financial performance of M’s
subsidiaries since the accounts date. Instead of immediately
notifying the market of this material change, M’s board
delayed disclosure of this price-sensitive information and
failed to consult with its nominated adviser (nomad) as to
its disclosure obligations until 28 September. This course of
action, and a general failure to have sufficient procedures,
resources and controls in place to ensure compliance with the
AIM Rules, was determined to be a breach of Rules 11 and
31. Further, the fact that M had released an announcement
to the market on 25 September 2017 omitting to mention
the relevant financial information, and instead referring to the
subsidiaries only as “profitable and cash generative”, was a
breach of Rule 10.
In a separate AIM Disciplinary Notice, the LSE privately
censured and fined two companies for breaches of the
AIM Rules. One of the companies concerned had breached
Rules 10 and 31 by accidentally disclosing certain information
in a social media post that should instead have been released
to the market via RIS notification. The other company
censured had failed to consult with its existing nomad
concerning the company’s progress towards appointing their
replacement, after a breakdown of the relationship between
the company and adviser, and in so doing had breached
Rules 11 and 31. (AIM Disciplinary Notice AD 18 and AIM
Disciplinary Notice AD 19, dated 13 August 2018)
Key lessons
Importance of Rule 31 of the AIM Rules: All three
of these cases involved a breach of Rule 31 in some
manner, whether it be a company’s failure to have in
place sufficient procedures, resources and controls
to enable it to comply with the AIM Rules or failure
to keep its nomad informed and seek advice from its
nomad regarding compliance with the Rules.
Pressures on time and resources are no defence:
The LSE noted in its announcement of public
censure against M that it recognised that the failure
to disclose information was unintentional and that
the board was operating in difficult circumstances
and facing various challenges at the time, including
frustration of an attempted sale of subsidiaries and
a shareholder meeting requisition. Nonetheless,
this was no excuse for non-compliance with the
AIM Rules.
Social media strategy: The private censure
highlights the need to have proper controls in place
to monitor effectively all disclosures made via
social media.
Click here to read more
Public censure and fine for breaches of the
disclosure requirements of the AIM Rules
in relation to payment obligations under an
exclusivity agreement
The London Stock Exchange (LSE) announced the
public censure and fine of Bushveld Minerals Limited (B)
for breaches of Rules 11 (General disclosure of price-
sensitive information) and 31 (AIM company and directors’
responsibility for compliance) of the AIM Rules.
The LSE publicly censured and fined B for breaches of
Rules 11 and 31 of the AIM Rules resulting from failures
to comply with a without delay obligation to inform the
market of monies committed under an exclusivity fee
arrangement, once a binding obligation arose. Around
March 2016, B was considering acquiring a vanadium mine
and plant in a transaction which would have constituted a
reverse takeover, if completed. B entered into an exclusivity
agreement on 24 March 2016, under which it was required
to place US$500,000 on deposit with its lawyers, subject to
a solicitor’s undertaking to release the monies to the seller
once certain conditions were met The undertaking was not
given immediately. On consulting its nomad, B was informed
that giving such an undertaking would create a binding
obligation which, in turn, would give rise to a without delay
disclosure obligation under AIM Rule 11, as the exclusivity
fee was a material sum in relation to B. B wanted to avoid
disclosure, as it would entail having to disclose the proposed
reverse takeover, having its securities suspended pursuant
to the guidance to AIM Rule 14, and would, it believed,
jeopardise a related fundraising. B therefore sought advice
from its lawyers on its disclosure obligations, whose advice
conflicted with the nomad’s. B asked the nomad to liaise
with the LSE to discuss whether or not, on notification, a
suspension was required. On 7 April 2016, without informing
its nomad, B authorised its solicitors to give their undertaking
in respect of the exclusivity fee, and therefore a without
delay disclosure obligation arose under the AIM Rules. The
nomad was only informed weeks later, when the undertaking
was mentioned during discussions with B about fundraising.
The effect was that it was not until 22 April 2016 that the
undertaking and exclusivity fee were disclosed and B’s
securities were suspended from trading. The LSE determined
that the failure to disclose the arrangements without delay
once the undertaking was given was a breach of AIM Rule 11,
and that B’s failure to provide its nomad with full information
in relation to the undertaking was a breach of AIM Rule 31,
and had meant that both the nomad and the LSE were
not in possession of the facts when in discussions. (AIM
Disciplinary Notice AD 20, dated 7 December 2018)
Key lessons
Importance of Rule 31 of the AIM Rules: This
censure is yet another instance where a failure to
comply with AIM Rule 31 has been central to the
LSE’s decision to impose sanctions on an AIM
company. In this case, the LSE specifically stated
that a nomad “should be able to have confidence”
that it is being provided with all relevant information
and that a failure to comply in this case had
“potentially affected the Exchange’s ability to make
fully informed regulatory decisions”.
Pressures on time and resources are no defence:
As with AD 18 and 19, the LSE once again noted
that the company being censured was operating
under challenging commercial conditions and that its
attention was focused on the fundraising to mitigate
the materiality of the exclusivity fee. This was not an
excuse for non-compliance as B should have been
aware, from the nomad’s advice, that its actions
constituted a breach of the Rules.
Click here to read more
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This publication is prepared for the general information of our clients and other interested persons. It is not, and does not attempt to be, comprehensive
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JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

Email

First Name

Last Name

Company Name

Company Industry

Title

Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

Operate our Website and Services and publish content;

Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);

Measure readership and usage of the Website and Services;

Communicate with you regarding your questions and requests;

Authenticate users and to provide for the safety and security of our Website and Services;

Conduct research and similar activities to improve our Website and Services; and

Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.

If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.

Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.

Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.

Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.

Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.

To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.

Your Rights

Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.

Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.

Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.

Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

Improve the user experience on our Website and Services;

Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;

Track anonymous site usage; and

Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

"Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).

"Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.

"Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

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